The much awaited re-financing of Frasers Commercial Trust (FCOT)’sshort-term S$70m loan expiring in Nov’08 has been finalized. The loan wasobtained from their parent F&N for a period of 6 months to March ‘09 at acost of 3.7%. The manager aims to refinance this loan together with theS$550m tranche expiring in 2009. Given the strong backing of F&N as itssponsor, we believe that re-financing of these loans should not be aproblem.

During our post results road show and results briefing, these issueswere highlighted.

(1) strategic review continues. Management of FCOT will be keen to divestits Japanese exposure (valued at S$228m) when the opportunity arises. Thisis astute given the parent’s relatively lack of exposure in Japan. ItsAustralian assets remain as part of FCOT plans moving forward, given itsstrong underlying cash flow.

(2) the need to re-capitalize and a stronger balance sheet. At gearing of49% vs S-Reits 30+%, FCOT’s high financial leverage not only incurs highdebt servicing costs but also exacerbates the perceived risk given thecurrent tight liquidity environment. We believe that ways that managementcould explore in solving the current gearing issue will be through (i) anasset sale, possibly Japanese assets, (ii) equity raising either from astraight asset swap or fresh equity call.

(3) Improving operational performance. Management will continue to optimizeyields at its assets, particularly Keypoint where occupancy has fallen to75% in Sept’08. Management aims to bring it up to 90% by end FY09.

Relevance: While FCOT remains one of the cheapest reits at 0.2x P/BV, theoverhang of its ST debt re-financing needs with an overhang from a possibleequity raising could likely weigh on share price performance in the nearterm. As such, we maintain HOLD, TP $0.31, pending affirmation ofabove-mentioned plans.